Tuesday, June 15, 2010

In honor of Edward Hugh – Part 1

Edward Hugh writes A Fistful-of-Euros – one of my favorite blogs. I always thought of Edward as some second-tier economics academic who was right about several key issues and had an obsession which left his faculty members nonplussed. Academic rigor was not the key – and almost everything on Hugh's blog could have been fined-up by someone who had a decent understanding of Paul Krugman's book on currency and crises. (Of course fine technical detail did not detract from Mr Hugh being right – and on the key issues he was and remains emphatically right.)

I have in the past referred to him as Professor Hugh – and whilst someone corrected me in the comments it never occurred to me he was some disheveled amateur economist living a low-key life in Catalonia. He was way better than that – indeed way better than most economics professors. Besides he had some help from Claus Visteen – an uber-nerd macroeconomics grad student who writes the very competent alpha-sources blog. [I would have incorrectly guessed that Ed was Claus's PhD supervisor or something like that.. Still I only once seriously thought about doing a PhD in economics and Brad Delong did not answer my emails... I guess I am not knowledgeable about the ways of the academy.]

Edward Hugh is having his day in the sun and the New York Times has honored him with an article. An in celebration I thought of further (and trivially) honoring him with a blog post – about how a post-crisis Europe might look and the path to getting there.

Alas I found that I could not write a single post to cover the ground – and so I will write a couple which will wind up longer and more complicated than I envisaged.

The first post – tomorrow I hope – will cover a bank right at the center of the storm – the surprisingly well-run National Bank of Greece. NBG is however a small part of the big problems of Europe. I think the best way of explaining macroeconomics to non-economists is to work from specific and concrete examples and NBG is an excellent example. (Krugman’s book tends to stand real-world examples – but is hardly light reading…)

And so, at least for tonight, I will raise another glass of Spanish wine to Edward Hugh and settle down to drafting some serious bank analysis.

John

PS. For completeness I should disclose several positions here.

1. National Bank of Greece has preference shares listed on the New York Stock Exchange where there is no restriction on shorting them. They were priced at about 80c in the dollar until quite late into the crisis – indeed they traded at a premium to the sovereign and they were a good short. We remain short them – but the bet is not as delicious as it was when we first put it on and we have covered almost all of the position.

2. We remain substantially short the Spanish banks. Again it is illegal to short them in Spain (except via derivatives). It remains legal to short their ADRs. At one stage in the fund the Spanish bank shorts were (collectively) our largest losing position. We increased them – and increased them again on the way down and they are now (collectively) our second largest winning position. We are also slowly covering the position. I have blogged about BBVA and I thought (and still think) they are fudging the accounts of their US subsidiary – though that is not the reason we are short these stocks.

3. We have minor positions – long and short – in various European banks. Generally smaller banks in solvent countries (especially France) are OK – and bigger banks tend to have cross-border exposures. In 2003 or 2004 I went to a banking conference in London where the theme was cross-border banking consolidation in Europe. That was not a good idea but plenty of investment bankers made a career on it. [In investment banking you can make extra-good money promoting bad mergers.]

4. I have not run this series through Edward Hugh. I hope he appreciates the attention and does not resent my intrusion onto turf he covers so well. I am closer to Claus than Edward Hugh (emails number over a dozen from Claus and very few from Mr Hugh – though none are close). However I have met none of these people and chatted to Claus only a couple of times.

5 comments:

It is funny that independently from one another the same people seem to like the same blogs & sites (afoe, naked capitalism, calculated risk, creditwritedowns, boombustblog,...). Edward Hugh's analysis makes a lot of sense, though I am not in agreement with him on the internal devaluation thing.

It does make me wonder though. There MUST be intelligent people believing in a V-shaped recovery too? Where are they? What can we learn from them?

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